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Silicon Valley Bank Collapse: Shockwaves Across the Tech Industry


The collapse of Silicon Valley Bank last Friday was the largest U.S. bank failure since 2008 and has sent shock waves through the tech industry.[0] The 40-year-old bank, which serviced 65 percent of all existing venture-backed start-ups, was taken over by federal regulators after a massive bank run triggered by a spike in depositors attempting to withdraw their money.

The Federal Reserve, Treasury Department, and Federal Deposit Insurance Corporation (FDIC) have stepped in to guarantee all deposits at the bank, including those above the FDIC’s normal insurance guarantee of up to $250,000.[1] The FDIC has also said that banks facing similar situations—having to sell Treasury securities to meet deposits—can borrow from the Fed using the Treasury securities as collateral.[1]

SVB had a particular issue in that it was overly focused on one particular area of business.[2] As the venture capital and private equity sectors have been thriving over the past decade, SVB has benefited as well.[3] Due to the bank’s heavy concentration in one industry, it was exposed to a high level of risk.[2] When the situation deteriorated for the bank’s homogeneous group of customers, it rapidly became difficult for the bank.[2]

SVB also had around 90% of its accounts with more than $250,000 in deposits, which is [4]higher than your typical bank,[4] said Faulkner.[1] The consequence of this was that most of the bank’s deposits were not backed by the government.[5]

The tech sector has been rocked by the incident.[2] The irony is that the very people and companies who had their money invested in SVB’s took it out earlier in the week, which in turn contributed to the downfall of the bank.[2] It appears that not everyone was able to secure their funds, and the FDIC only guarantees deposits up to $250,000. Thus, customers who had higher balances in SVB are in an unpleasant situation.[6]

President Joe Biden is attempting to give the public confidence in the safety of the banking system, stating, “Americans can have faith that the banking system is secure.”[7] Your funds are secure. I also want to assure you that we will not be content with this. We will do whatever is necessary.[4]

The Silicon Valley Bank collapse presents an interesting challenge to the theory that without insurance, depositors will exercise useful disciplinary oversight over banks.[4] This is what caused the bank’s downfall.[4]

0. “How does a bank collapse in 48 hours? A timeline of the SVB fall” CNN, 13 Mar. 2023, https://www.cnn.com/2023/03/11/business/svb-bank-collapse-explainer-timeline/index.html

1. “Silicon Valley Bank: Who’s to Blame?” City Journal, 13 Mar. 2023, https://www.city-journal.org/silicon-valley-bank-who-is-to-blame

2. “What is Silicon Valley Bank? The bank’s collapse, explained.” Vox.com, 14 Mar. 2023, https://www.vox.com/technology/23634433/silicon-valley-bank-collapse-silvergate-first-republic-fdic

3. “Silicon Valley Bank’s failure, the government’s depositor rescue, and venture capitalists’ incredible tantrum.” Slate, 13 Mar. 2023, https://slate.com/technology/2023/03/silicon-valley-bank-rescue-venture-capital-calacanis-sacks-ackman-tantrum.html

4. “The Silicon Valley Bank collapse couldn’t have happened in this one state” Vox.com, 15 Mar. 2023, https://www.vox.com/policy/23636583/silicon-valley-bank-collapse-fdic-deposit-massachusetts

5. “Silicon Valley Bank: What happened before the collapse” NPR, 15 Mar. 2023, https://www.npr.org/2023/03/15/1163269781/silicon-valley-bank-svb-collapse-history

6. “Silicon Valley Bank Bailout is Socialism for the Rich” Washington Free Beacon, 13 Mar. 2023, https://freebeacon.com/columns/silicon-valley-bank-bailout-is-socialism-for-the-rich

7. “Why did Silicon Valley Bank fail and is a financial crisis next?” Al Jazeera English, 14 Mar. 2023, https://www.aljazeera.com/economy/2023/3/14/why-did-silicon-valley-bank-fail-and-is-a-financial-crisis-next

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